31/05/2018
7 take-aways from the VC panel of Global Meeting in Cascais, Portugal in May
Horasis Global Meeting. Cascais. May 8th, 2018
Panel “Venture Capitalists. Delivering the yields”
Key take-aways
1) The efficiency of the traditional 2% (management fee)+20 % (carried interest) VC model has become questionable due to the increased difficulties of balancing the amount of skin-in-the game of GP (general partners), their obligations towards LPs (limited partners) and developmental objectives of portfolio companies.
2) There is an increased number of LPs and family offices wishing to do more direct deals, and to bypass or add onto their VC commitments by doing some direct deals.
3) There is an obvious increase of the importance of longer term and smarter private investment of two types. First type being associated with private equity mindset and high number of M&As (mergers and acquisitions) at earlier stages to create sustainable business models with a good natural potential for growth and ability to connect to existing ecosystems . Second type is coming from business angels who have entrepreneurial skill sets and insights, both startups and VCs often lack, but can benefit from. Therefore more active involvement of angels and/or entrepreneurs is expected both in invested businesses and in funds' boards.
4) “Club deals” as opposed to typical VC are important and play a significant role in developing markets or in tech sectors where in-depth knowledge of the industry is required and an average angel investor does not have it.
5) Investment in isolated tech startups is too risky as they, even if technically really good, represent only a small part of a disruptive value chain, which may not exist yet. Therefore, investment into entire verticals and clusters is necessary. There is a tremendous opportunity of coinvesting with corporate venture funds.
6) Access to capital is crucial in fostering young growth initiatives, and there are more and more sources available these days from local angels, public funding, academic funding, corporate venture funds, international funds, fund of funds platforms, sovereign wealth funds, country specific development funds, joint venture partners, hedge funds, asset allocators, not to mention friends and family who want their startup to succeed. However, collective and well structured collaboration of investors is needed, but still lacking. Agencies, private or public, that are capable of organizing such collaboration as well as co-creation with industrial stakeholders will play a great role.
7) The role of governments may be both positive and negative. Even though there is no one-size-fits-all solution, the success of Silicon Valley did not materialize entirely from the private sector, but involved serious public support from the State of California, CalPERS and CalSTRS, Stanford, University of California and other universities that had public funding sources, municipal grants and foundations such as HP etc. Other governments around the world are finally playing catch up to encourage their VC and innovationf talent. Nearly all European countries now have hyper active incubation programs, tax concessions, free facilities, global networks, higher education resources, etc that are essential to catch up with global leaders established decades earlier, but without cloning their old models. The negative effect of government involvement may come in the form of regulations that may hinder both innovation and investment at the a very early stage. Another negative effect may occur when governments become dominant direct investors crowding the market instead of stimulating massive private co-investment.
